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Why Luanda’s residents are asking: where did all the oil riches go?

The Angolan government failed to use revenues when the oil price was high to tackle massive social and economic challenges. Reuters/Siphiwe Sibeko

A few years ago, Luanda, the capital of Angola, was on every ambitious investor’s lips. With large infrastructure and housing projects rapidly changing its appearance, the city seemed to be leaving behind the country’s 27-year civil war. But hopes for renewal are slowly dissipating as the price of the commodity on which Angola’s future was being constructed – oil – steadily declines.

Angola is Africa’s second-largest oil producer. It is one of the countries that have been hardest hit by the fall in oil prices. The oil crash forced Angola to slash its 2015 budget by US$17 billion (a 25% reduction). Construction companies are having difficulties paying their workers, and the Angolan central bank has devalued the currency, the kwanza. Construction threatens to screech to a halt.

The fantasy built on oil is crumbling, showing that its benefits were barely felt outside privileged sites of elite consumption. As criticism of the government mounts and Angolans begin to ask what actually happened to the glut of oil dollars, Luanda acts as a lesson that spectacle is no substitute for substantial political and economic change.

The post-war oil boom

Angola’s economic challenges appear especially dramatic given the optimism the country inspired following the end of its civil war(1975–2002). The war left Angola shattered. Infrastructure was destroyed, an estimated 4.1 million people were internally displaced, and the economy outside of the oil sector collapsed. When peace was announced in April 2002, Angola’s future was uncertain.

This changed when the international price of crude oil rose from US$34.86 a barrel to US$146.12 at its peak in 2008. Combined with increased oil production, this meant that Angola went from financially fragile to stable.

Eschewing the Bretton Woods institutions which tried to impose financial governance conditionalities on loans for post-conflict reconstruction, Angola initiated a system of oil-backed credit lines predominantly, but not only, with China. The deals involved the creditor extending a line of funding in return for Angola selling a fixed amount of future oil to the creditor. Amounting to billions of US dollars, these credit lines gave Angola access to the resources for reconstruction.

The national reconstruction project outlined in the 2003-04 government program included initiatives for improved social services and poverty reduction. But the primary focus was on real estate and infrastructure.

Luanda, home to 6.5 million people – just under one-quarter of Angola’s population – was the centre of these investments. Oil profits were sunk into a number of redevelopment plans, including:

  • state land reserves for urbanisation initiatives;

  • the construction of a large rehousing zone, Zango, for people forcibly removed for reconstruction projects;

  • the building of a satellite city, Kilamba, to eventually house 500,000 people; and

  • high rises in the city centre and real estate developments in the city’s southern areas aimed at high income earners.

Prices went through the roof, leading to Luanda consistently being ranked as the most expensive city in the world for expatriates.

No oil benefits for the poor

For those living in the city centre and other wealthy areas, it really did feel like a new world was emerging. But for three-quarters of Luandans who live in informal settlements, nothing changed significantly. In fact, their urban status was increasingly uncertain.

Central to the creation of the new Luanda was the mass demolition of slum areas, referred to locally as musseques or bairros, and the removal of residents to rehousing zones.

Many of those affected were not rehoused. They simply lost their homes and land. There was little legal recourse, as the Angolan state is the ultimate owner of all land. A 2004 land law removed the legality of good-faith occupation, and it is extremely difficult to legally register land. Luanda’s fantasy was therefore being constructed on the increasing precarity of the majority.

Members of the Patriotic Youth of Angola protest against irregularities in the election process in 2012. EPA/Paulo Novais

Lack of economic and political transformation

After the oil price crash Luandans are left wondering what was actually achieved. Between 2004 and 2014 Angola failed to diversify its economy significantly. Foreign reserves are drying up and inflation hit a three-year high of 10.4% in July this year.

This has been partially driven by a fuel price increase imposed after the fuel subsidy was slashed as a means of decreasing spending. This has led to a rise in food and consumer goods prices, negatively affecting even the small gains that the urban poor made during the boom years.

Ever stronger evidence is emerging of financial mismanagement and large scale corruption in the administration of oil funds. A 2011 IMF report identified that public funds of US$32 billion linked to the state oil company, Sonangol, were unaccounted for. Although it later found that $US27.2 billion was due to unrecorded expenditure by Sonangol on behalf of the Angolan government, this left open the question of what had happened to the outstanding amount.

China has also launched investigations into allegations of corruption involving its economic deals in Angola. This has led to the arrest of Su Shulin, former head of Sinopec, the Chinese state oil company responsible for oil investment in Angola, and of Sam Pa, the kingpin of the Queensway Group, who brokered many of the agreements between Angola and Chinese business.

While Angola is now searching for new sources of financing, seen in its issuing of $US1.5 billion of Eurobonds, the general feeling is that its economic problems are set to continue.

Political repression is on the increase

José Eduardo dos Santos has been in power in Angola since 1979. Reuters/Siphiwe Sibeko

A nascent urban youth movement emerged in 2011 calling for changes to the political system. Their demands included respect for civil liberties and the resignation of President José Eduardo dos Santos, who has been in power since 1979. He leads the Popular Movement for the Liberation of Angola, which has been in charge since 1975.

Their protests have been small but potent. These hesitant signs of a political opening up have been crushed as the government has sought to contain political dissent. Seventeen youth activists have been charged with attempting to overthrow the government. Fifteen have been detained for more than 100 days.

But crushing political dissent will not solve the country or the city’s problems. To bring meaningful change, financial resources have to be orientated towards the needs of the majority.

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